Accounting Standard (AS) – 3

Cash Flow Statements

Introduction
 Cash flow statement is additional information to user of
financial statement

 This statement exhibits the flow of incoming and outgoing

cash

 This statement assesses the ability of the enterprise to

generate cash and cash equivalents

 It also assesses the needs of the enterprise to utilise the cash

and cash equivalents generated

 It also assesses the liquidity and solvency of the enterprise.

Applicability
 This standard applies to the enterprises:

 Having turnover more than Rs. 50 Crores in a financial year;

 Listed companies;
 Cash flow statement of listed companies shall be presented only
under the indirect method as prescribed in AS 3
Definitions
 Cash comprises cash on hand and demand deposits with banks.

 Cash equivalents are short term, highly liquid investments that are readily
convertible into known amounts of cash and which are subject to an
insignificant risk of changes in value.

 Cash flows are inflows and outflows of cash and cash equivalents.

 Operating activities are the principal revenue-producing activities of the

enterprise and other activities that are not investing or financing activities.

 Investing activities are the acquisition and disposal of long-term assets and
other investments not included in cash equivalents.

 Financing activities are activities that result in changes in the size and
composition of the owners’ capital (including preference share capital in the
case of a company) and borrowings of the enterprise.
Features of Cash Flow Statement
 The cash flow statement should report cash flows
during the period classified by

CASH FLOW
STATEMENT

OPERATING
ACTIVITIES INVESTING FINANCING
ACTIVITIES ACTIVITIES
Operating Activities
 These are principal revenue producing activities of
the enterprise.

 Examples:
 Cash receipts from sale of goods / rendering services;

 Cash receipts from royalties, fees, commissions and other

revenue;

 Cash payments to suppliers of goods and service;

 Cash payments to and on behalf of employees.

Investment Activities
 The activities of acquisition and disposal of long term assets and other
investments not included in cash equivalent are investing activities.

 It includes making and collecting loans, acquiring and disposal of debt and
equity instruments, property and fixed assets etc.

 Examples of cash flows arising from investing activities are as follows:

 Cash payments to acquire fixed assets

 Cash receipts from disposal of fixed assets

 Cash payments to acquire shares, warrants or debt instruments of other

enterprises and interest in joint ventures

 Cash receipt from disposal of above investments

Financing Activities
 Those activities that result in changes in size and composition of owners
capital and borrowing of the organization.

 It includes receipts from issuing shares, debentures, bonds, borrowing and

payment of borrowed amount, loan etc.

 Sale of share

 Buy back of shares

 Redemption of preference shares

 Issue / redemption of debentures

 Long term loan / payment thereof

 Dividend / interest paid

Extraordinary items
 The cash flows associated with extraordinary items
should be classified as arising from:
 Operating
 Investing or
 Financing activities
as appropriate and separately disclosed.
Treatment of tax
 Cash flow for tax payments / refund should be classified
as cash flow from operating activities.

 If cash flow can be specifically identified as cash flow from

investment / financing activities, appropriate classification
should be made.
Investments in subsidiaries,
associates and joint ventures
 Only the cash flow between itself and the investee is
required to be reported

 Example:
 Cash flow relating to dividends and advances
Acquisitions and disposals of
subsidiaries and other business units

 Cash flow on acquisition and disposal of subsudiaries and

other business units should be :

 Presented separately

 Classified as investing activities

 Total purchase and disposal should be disclosed separately

 The position of the purchase / disposal consideration discharged

by means of cash and cash equivalents should be disclosed
Non-cash transactions
 These should be excluded from the cash flow statement

 These transactions should be disclosed in the financial

statements.

 Examples

 Acquisition of assets by assuming directly related liabilities

 Acquisition of an enterprise by means of issue of equity sshares

 Conversion of debt to equity

Disclosures of cash and cash
equivalents
 The components of cash and cash equivalents should
be disclosed

 Reconciliation of the amount in the cash flow

statement with the equivalent items reported in the
balance sheet

 The amount of cash and cash equivalent balance held

by the enterprises that are not available for use (with
explanation by management)
Conclusion
 To conclude it is necessary for the organization to maintain
the cash flow for the shareholders trust and also to gain the
profit. To maintain such things company needs to take some
positive steps towards modernization and expansion .
Thank You